Paragon's Governance Battle: A Fight for Control and Compliance

Paragon Technologies, Inc. (OTC Pink: PGNT) finds itself at the center of a high-stakes governance battle, as revelations about its former chairman and CEO’s illegal employment status and attempts to seize control of the board have sparked urgent calls for shareholder action. The company’s recent disclosures and revocation process highlight a clash between corporate accountability and executive overreach, with profound implications for investors.

The Misconduct at the Core of the Conflict

On May 2, 2025, Paragon’s Audit Committee publicly accused former CEO Hesham Gad of operating without valid U.S. work authorization and concealing his immigration status by misclassifying himself as an independent contractor through his entity, HG Consulting, Inc. This scheme allegedly violated federal tax laws, Pennsylvania and Georgia state tax requirements, and fiduciary duties to shareholders. Gad’s actions, the committee concluded, exposed Paragon to significant fines, legal risks, and reputational damage.

The revelation underscores a critical governance failure. Gad, who led Paragon for years, allegedly ignored repeated board requests to clarify his employment status and actively concealed his noncompliance. The Audit Committee deemed his actions so severe that they declared him unfit to serve as a director or officer of any public company.

The Revocation Process: A Race Against Time

Gad’s response to the allegations has been aggressive. He is reportedly soliciting written consents from shareholders to remove all current directors except himself and replace them with his nominees before the annual meeting. In response, Paragon has launched a revocation campaign, urging shareholders who provided consents to immediately withdraw their support using a “BLUE revocation card” to be mailed shortly.

The process hinges on swift shareholder action. Those who signed consents must return the BLUE card to nullify their votes. Shareholders needing assistance can contact Alliance Advisors LLC via phone or email. The stakes are high: if Gad succeeds, he could install a board loyal to him, sidelining current directors and potentially perpetuating the same governance flaws that led to the crisis.

Market Context: Legal Risks and Strategic Moves

The Audit Committee’s statement highlights broader risks. Gad’s misconduct could trigger fines under federal employment laws and state tax codes, while Paragon’s stockholder rights plan—adopted in March 2025—aims to deter hostile takeovers without fair premiums. This “poison pill” mechanism, though standard in corporate defense strategies, signals Paragon’s resolve to protect shareholder interests amid internal turmoil.

A look at PGNT’s stock price fluctuations around the May 2 revocation announcement could reveal investor sentiment. If the stock dipped initially but stabilized as shareholders heeded the revocation call, it might signal confidence in the company’s ability to navigate the crisis.

Proxy Battles and External Pressures

Paragon’s governance issues extend beyond its own boardroom. In February and April 2025, the company engaged in a proxy contest targeting Ocean Power Technologies (OPT), a firm in which it holds a stake. Paragon criticized OPT’s financial management, including spending $30 million for just $3 million in sales, and urged shareholders to reject OPT’s board. This activism reflects Paragon’s broader stance on governance accountability—both internally and in its investments.

Conclusion: A Turning Point for Paragon

Paragon’s current crisis is a test of its commitment to shareholder rights and legal compliance. The revocation process is a critical juncture: if shareholders act promptly, the company can avoid a leadership takeover by an unfit executive and mitigate legal exposure. However, failure to revoke consents could destabilize the board, leading to prolonged governance disputes and financial penalties.

Investors should monitor two key metrics:
1. Shareholder Revocation Rates: A high revocation rate (evidenced by declining support for Gad’s nominees) would signal shareholder trust in Paragon’s leadership.
2. Legal Outcomes: Any fines or settlements tied to Gad’s misconduct will directly impact Paragon’s financial health.

The company’s limited duration stockholder rights plan and public disclosures also suggest a strategic focus on long-term stability. While the governance battle introduces near-term volatility, Paragon’s subsidiaries in material handling, real estate, and investments provide a foundation for recovery if the current crisis is resolved decisively.

For now, the message to shareholders is clear: act swiftly with the BLUE revocation card. The future of Paragon’s governance—and its stock—rests on their response.